Lack of Demand Affecting Trade

It comes as no shock but the global slowdown has affected trade. The warnings have been sounded by nearly every global analyst as they have looked at the activity (or lack of it) in some of the major supplier nations.

Part of the challenge to Chinese growth has come from the fact that too many of the nations that usually buy from them are not in very good economic shape. Meanwhile, the U.S. consumer started to go into hibernation in the last month or so, resulting in a 3% drop in imports.

In recent days, there has been a high-profile disaster in Bangladesh – the collapse of a building housing several busy garment factories – that has alerted the casual observers of global trade patterns about conditions in many of these export nations being far less than acceptable. The collapse killed and maimed thousands and, suddenly, the companies that buy these items are backtracking and trying to reassure consumers that they are looking into the situation. It is unlikely that consumers will react all that strongly, but if demand is already stuttering a little, these are the tragedies that can push consumers over the top.

The export side of the equation has also shown some signs of strain. The rate of U.S. exports declined by 1% in March, and that contrasts with an overall rise of 4.3% in exports in all of 2012. There has been no significant change in the factors that have allowed the U.S. to become a more aggressive export nation in the last few years, but global demand is down. This has offset the advantages the U.S. had developed based on currency values and improved manufacturing productivity. The U.S. had been selling pretty consistently to the states in South America, but newfound problems in Brazil and Argentina have reduced their ability to keep buying the US goods.

One other important factor as far as U.S. import activity is the reduced demand for oil. Slower development of the economy has meant that there is less activity and, therefore, less need to buy it. That will be a shorter-term factor, and demand will increase as the economy rebounds. The longer-term trend is that the U.S. is steadily producing more of its own oil, reducing importing from other nations.

Going forward, the biggest disappointment is likely to be that China continues to struggle. The reality is that China is a linchpin in much of the global economic recovery. If China is not selling to the U.S. and Europe, it is not making enough money to buy commodities, raw materials and intermediate goods from nations like Australia, Indonesia and Thailand. If these nations are not selling to China, they don’t have the money to buy from the U.S. That pattern makes what is happening in China very important.

-Armada Corporate Intelligence

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